Tag Archives: tax code

Study: 73 percent of Fortune 500 companies playing offshore shell game

More than 73 percent of Fortune 500 companies maintained subsidiaries in offshore tax havens in 2015, according to “Offshore Shell Games.”

The new study was released this week by the U.S. PIRG Education Fund, Citizens for Tax Justice and the Institute on Taxation and Economic Policy.

Collectively, multinationals reported booking $2.5 trillion offshore, with just 30 companies accounting for 66 percent of this total.

By indefinitely stashing profits in offshore tax havens, corporations are avoiding up to $717.8 billion in U.S. taxes.

“Corporate tax dodging may be legal, but it’s certainly not good for everyday taxpayers and responsible small businesses,” Michelle Surka, advocate with U.S. Public Interest Research Group, said in a news release. “It disadvantages small businesses that don’t have scores of tax lawyers, creates an economic environment that favors accounting tricks over innovation and real productivity, and forces the rest of us to foot the bill. We’re beginning to see a growing international interest in cracking down on corporate tax dodging, and with $717.8 billion on the line, it’s time for the United States to start doing the same.”

“Every year, corporations collectively report that they have tens of billion more in cash stashed offshore than they did the year before, “ added Matthew Gardner of the Institute on Taxation and Economic Policy. “The hard fact is that the U.S. tax code incentivizes tax haven abuse by allowing companies to indefinitely defer taxes on offshore profits until they are ‘repatriated.’ The only way to end this kind of tax avoidance is by closing the loopholes in the tax code that enable it.”

Key findings of the report:

• 367 Fortune 500 companies collectively maintain 10,366 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 2,509 tax haven subsidiaries.
• 58 percent of companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands, countries with no corporate tax. The profits that American multinationals collectively claim to earn in these island nations totals 1,884 percent and 1,313 percent, respectively of each country’s entire yearly economic output, an impossible feat.
• The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.65 trillion overseas. That is 66 percent of the nearly $2.5 trillion that Fortune 500 companies together report holding offshore.
• Only 58 Fortune 500 companies disclose what they would expect to pay in U.S. taxes if these profits were not officially booked offshore.In total, these 58 companies would owe $212 billion in additional federal taxes, equal to the entire state budgets of California, Virginia and Indiana combined. The average tax rate the 58 companies currently pay to other countries on this income is a mere 6.2 percent, implying that most of it is booked to tax havens.

The study highlights the following companies:

Apple: Apple has booked $214.9 billion offshore — more than any other company. It would owe $65.4 billion in U.S. taxes if these profits were not officially held offshore for tax purposes. A recent ruling by the European Commission found that Apple used a tax haven structure in Ireland to pay a rate of just 0.005 percent on its European profits in 2014, and has required that the company pay $14.5 billion in back taxes to Ireland, where the company was paying significantly less than even the tax haven’s standard low tax rate. A U.S. Senate investigation in 2013 uncovered Apple’s two Irish subsidiaries that were tax residents of neither the United States, where they are managed and controlled, nor Ireland, where they are incorporated.
Nike: The sneaker giant officially holds $10.7 billion offshore for tax purposes on which it would owe $3.6 billion in U.S. taxes. This implies Nike pays a mere 1.4 percent tax rate to foreign governments on those offshore profits, indicating that nearly all of the money is officially held by subsidiaries in tax havens. The shoe company, which operates 931 retail stores throughout the world, does not operate one in Bermuda.
Goldman Sachs: Goldman Sachs reports having987 subsidiaries in offshore tax havens, 537 of which are in Bermuda despite not operating a single legitimate office in that country, according to its own website. The bank officially holds $28.6 billion offshore.
The report concludes that to end tax haven abuse, Congress should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement and increase transparency.

How Trump’s and Clinton’s tax policy would affect your wallet

For America’s wealthiest families, the presidential campaign presents a stark choice when it comes to tax policy: A big tax increase if Hillary Clinton wins the election — or a big tax cut if Donald Trump wins.

For everyone else? Right now, neither candidate is proposing major tax changes.

Tax policy is probably where the two nominees differ the most. On trade, Clinton has backed off her previous support for free trade agreements and, like Trump, now opposes the Trans-Pacific Partnership, a pact involving the U.S. and 11 other nations.

And Trump has said he would spend twice as much on building and repairing roads, airports and other infrastructure as Clinton would.

On trade and infrastructure spending, Trump has taken a populist approach that jettisons Republican orthodoxy. But on tax policy, his proposed tax cuts for individuals and businesses are more in line with previous Republican candidates and elected officials.

Clinton, for her part, is proposing to raise taxes for the wealthiest households to pay for traditional Democratic proposals such as expanding access to higher education.

“Here, at least, they fall into very much traditional Democratic and Republican proposals,” said William Gale, co-director of the Tax Policy Center, a joint project of the Brookings Institution and Urban Institute.

Yet on taxes, the two candidates remain far apart. Here are summaries of their proposals:

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TAXES ON HIGHER INCOMES

TRUMP: His tax policy would cut the top income tax bracket to 33 percent from its current level of 39.6 percent. Republican House Speaker Paul Ryan has made the same proposal, which the conservative Tax Foundation said would help boost after-tax income for the wealthiest 1 percent of Americans by 5.3 percent. Trump updated his tax proposal in a speech last week in Detroit, and hasn’t yet released many details. Tax experts haven’t been able to evaluate his proposals as a result.

CLINTON: She is proposing several tax increases on wealthier Americans, including a 4 percent surcharge on incomes above $5 million, effectively creating a new top bracket of 43.6 percent. And those earning more than $1 million a year would be subject to a minimum 30 percent tax rate. She would also cap the value of many tax deductions for wealthier taxpayers. All the changes would increase taxes in 2017 for the richest 1 percent by $78,284, reducing their after-tax income by 5 percent, according to the Tax Policy Center.

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TAXES ON MIDDLE INCOMES

TRUMP: Would reduce the seven tax brackets in current law to three, at 12 percent, 25 percent and 33 percent. Using the Tax Foundation’s evaluation of the House Republican plan, which includes the same brackets, the change would lift after-tax incomes for the bottom 80 percent of income earners — those earning less than about $195,000 a year — by just 0.2 percent to 0.5 percent.

CLINTON: Says she will not raise taxes on the middle class. Her current proposals would have little impact on the bottom 95 percent of taxpayers, according to the Tax Policy Center.

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CORPORATE TAX RATE

TRUMP: Would cut the corporate rate from its current 35 percent to 15 percent. He would also cut taxes on “pass-through” business income from partnerships such as law firms to 15 percent. More than two-thirds of “pass-through” income flows to the richest 1 percent of taxpayers, according to the liberal Center on Budget and Policy Priorities.

CLINTON: Would not change the corporate tax rate.

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“CARRIED INTEREST” LOOPHOLE

TRUMP: Managers for private equity firms and hedge funds can classify their investment profits as “carried interest” and pay capital gains taxes on their income at rates that can be as low as half the regular income tax rate. Trump says he would eliminate the loophole, but hedge fund and private equity managers would be able to pay even lower tax rates under his proposal to cut business taxes to just 15 percent.

CLINTON: Would eliminate the loophole and tax carried interest as ordinary income.

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ESTATE TAXES

TRUMP: Would eliminate the so-called “death tax” on that is currently levied on estates worth more than $5.45 million ($10.9 million for married couples).

CLINTON: Would increase the estate tax to 45 percent from 40 percent and apply it to more estates, starting with those worth $3.5 million ($7 million for married couples).

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CORPORATE INVERSIONS

TRUMP: Says his steep cut in the corporate tax rate would end the practice of corporate “inversions,” which occur when a U.S. company acquires a foreign corporation, then relocates overseas, to avoid paying U.S. corporate taxes. The U.S. corporate tax rate of 35 percent is the highest in the developed world, though many companies use deductions and other strategies to avoid paying that amount.

CLINTON: Would discourage inversions by making it harder for a U.S. company to classify itself as a foreign-owned to avoid U.S. taxation. She would also place an “exit tax” on companies that leave the U.S. while still keeping earnings overseas that haven’t been subject to U.S. tax.

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CHILD CARE

TRUMP: Wants to make all child care costs tax-deductible. Would allow the deduction to apply to Social Security and Medicare taxes to benefit lower-income earners who pay little or no income tax. Current law allows parents to deduct up to $6,000 in child care expenses.

CLINTON: Has made several proposals intended to help limit child care expenses to 10 percent of a family’s income, but hasn’t proposed using the tax code to achieve that goal.

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SOCIAL SECURITY

TRUMP: Would allow taxpayers to deduct child care costs from Social Security and Medicare taxes.

CLINTON: Says she will ask the wealthiest to “contribute more” to Social Security, by raising the cap on income currently subject to Social Security taxes, but has not released any details.

 

Federal tax code change will help live theater nationwide

Live commercial theater from Broadway to Los Angeles is about to get a huge financial boost under a federal tax code change that’s been championed by U.S. Sen. Charles Schumer and such stars as Neil Patrick Harris and Bryan Cranston.

Under a new tax package, Broadway and live theater productions will be given the same benefits that have long been afforded to TV and film productions.

Now, like small and large screen projects, live theater and concert productions would get up to $15 million in tax credits if they spent at least 75 percent of their budgets in the U.S. The new rule would apply for productions starting after Dec. 31.

“This is the biggest shot in the arm that Broadway and live performance has had in a long time,” Schumer, a Democrat from New York, said by phone. “It’s a very fair rule. It says: ‘Treat live performance the same as you treat movies.’”

Broadway and off-Broadway producer Ken Davenport, who has urged the theatrical community to push for the measure, celebrated its imminent passage.

“Half the reason I’m happy is that it’s just another sign that people are paying more attention to Broadway as a significant part of the economic driver in this country,” said Davenport, who has helped produce such shows as Kinky Boots, Spring Awakening and Allegiance.

The change is part of the Protecting Americans From Tax Hikes Act of 2015, a package of more than $600 billion in tax breaks for businesses, investors and families.

Schumer, who has been working on the tax break for four years, said the change would create “thousands and thousands” more jobs for actors and backstage workers, and produce more shows nationwide, helping hotel, restaurant and taxi industries. He noted that other countries also grant live theater similar breaks, especially in London, which has been luring away American productions.

Schumer said he expected the measure will help both Broadway producers —since they’ll be able to deduct their expenses up front — and investors, who won’t have to pay taxes on profits they haven’t made yet. The measure was co-sponsored by Sen. Roy Blunt, a Republican of Missouri.

Last year, the New York senator was joined by Harris, Cranston, Tyne Daly and producer Harvey Weinstein, as well as cast members from The Phantom of the Opera, Newsies and Rodgers + Hammerstein’s Cinderella. They all urged passage of the bill, saying it would enable theater producers to take more chances.

“It will help small theater production even more than large, but it will help both,” Schumer said. “I obviously care about Broadway — it’s a major New York industry — but it’s good for the whole country.”

The backers of the change pointed out that the benefits go far beyond New York, where Broadway box offices earned $1.36 billion last season. In the 2012–2013 theater season — the most recent year for which data is available — some 45 touring Broadway shows performed for more than 14 million theatergoers, contributing almost $3.2 billion to the U.S. economy.

“Broadway has a ripple effect through the rest of the country. If Broadway’s booming, then the touring houses are booming. It’s one of our greatest exports, in my opinion. And that business has been growing tremendously over the last 10, 20 years — U.S.-created Broadway entertainment going everywhere from South Korea to Australia. Russia, Sweden and all these countries,” said Davenport.

“It’s a huge business and I think they finally said, ‘Wow, this is significant and we need to treat them with respect and to make sure that people like me still do it.’ It gets harder and harder to produce on Broadway. Every year, it gets just a wee bit harder,” he added. “I’m glad people are starting to say, ‘We can’t lose this business.’”

Demand clean, open gov’t

Differences of opinion are inevitable in government. Disagreements between Democrats and Republicans over public investments, funding for schools or the fairness of our tax code are common.

Despite these differences, everyone can agree that an open, transparent and accessible government is essential to democracy.

Throughout Wisconsin’s history, both Democrats and Republicans have supported laws to protect citizen access, prevent political corruption and maintain high ethical standards.

Unfortunately, this historical bipartisan agreement is nearing an end.

Republicans who control the Legislature in Madison are pushing a package of bills that severely limit the ability of Wisconsin citizens to have their voices heard and hold officials accountable.

These bills follow the recent attempt by Gov. Scott Walker and legislative Republicans to gut Wisconsin’s open record laws. These misguided efforts to limit disclosure of public documents were abandoned only after newspapers, media outlets and citizens responded with overwhelming opposition.

Now, less than three months after the failed attempt to restrict open record access, the GOP is using an end-run tactic to rewrite long-standing campaign finance, ethics and anti-corruption laws.

Walker privately signed the first of these bills, Senate Bill 43, into law on Oct. 23. This law makes it more difficult to prosecute political corruption by exempting politicians from Wisconsin’s John Doe criminal investigation laws.

A second bill completely rewrites Wisconsin’s campaign finance laws allowing corporations to contribute directly to political parties and eliminating important disclosure requirements. The sweeping changes in this bill go beyond the controversial Citizens United Supreme Court decision and will result in even more TV ads, robocalls and special interest attack mailers during campaign season.

Finally, a third Republican proposal dismantles the nonpartisan Government Accountability Board, which oversees state elections and ethics laws. The board would be replaced with political appointees using a flawed model that encourages partisan bickering and gridlock rather than actual oversight.

Taken together, these bills make sweeping changes to many long-standing good government protections. This trio of bills is so troubling that one prominent government watchdog group recently called it “a massive, coordinated blitzkrieg on democracy and transparency.”

At a time when students, families and seniors across Wisconsin continue to face serious challenges, we should be focused on strengthening our state’s economy and improving financial security.

These misguided attacks on Wisconsin’s long-standing, bipartisan tradition of open and clean government are a threat to our democratic institutions and will only serve to further polarize Wisconsin’s political environment.

Senate Minority Leader Jennifer Shilling represents the 32nd Senate District. 

Tax Day trouble? LGBT Bar Association offers online help for same-sex couples

The National LGBT Bar Association, BNY Mellon and White & Case LLP have announced a first of its kind Online LGBT Tax Resource — at LGBTBar.org/tax — to help same-sex couples and their tax advisors navigate state tax laws.

The resource is a tool for both tax preparers and payers, providing a comprehensive, state-by-state list of reporting regulations for LGBT couples.

Tax law remains one of the most complex and nuanced issues impacting the LGBT community, especially in states where couples are not allowed to file married tax returns.

Following the U.S. Supreme Court’s decision invalidating the federal Defense of Marriage Act, married couples are now eligible to file married federal returns. In 33 states, however, those same couples cannot file joint state returns. In response, the Online LGBT Tax Resource was developed to ensure families are equipped with the most up-to-date tax information for their home state.

“The end of the federal Defense of Marriage Act was a giant step forward for couples, but state laws continue to legally discriminate against many families,” said D’Arcy Kemnitz, executive director of the LGBT Bar. “The Online LGBT Tax Resource unveiled today will ensure couples can maximize state tax laws, and the repeal of DOMA, as they navigate what is often a very confusing area for LGBT families. The Resource is designed to ensure they, and their tax preparers and attorneys, have reliable, trustworthy information.”

Among the information provided on the site, are key areas such as:

• A recap of states’ rules concerning same-sex marriage and the impact on state income tax in clear and concise language

• Individual state guidance for married same-sex taxpayers

• Information on litigation, and legislation, that could impact LGBT tax law; and

• Up-to-date information from states’ departments of revenue, and state constitutions.

“In states that don’t recognize same-sex marriage, same-sex couples and their tax preparers are struggling to make sense of how to apply the federal tax guidelines based on the ruling last year that the Defense of Marriage Act was unconstitutional,” said John Lillis, a tax partner with White & Case, who worked on the project pro bono. “This database is an important tool to help tax preparers and same-sex couples navigate the inconsistent rule that applies to state income tax laws.”

“Working collaboratively with the LGBT Bar Association, Pro Bono lawyers from BNY Mellon and White & Case have created an online resource to help same-sex couples reduce the complexity of tax laws. BNY Mellon’s pro bono team reflects our uncompromising commitment to diversity and inclusion as a core business issue,” said Deborah Kaye, managing director and senior managing counsel, BNY Mellon.

The Resource presents the many state-level regulations in easily understandable language. The site, which will be updated quarterly with any new developments impacting tax laws for LGBT couples, provides the only inclusive, accurate listing of filing regulations in all 50 states. 

Reform tax code

This issue of Wisconsin Gazette hits the streets as the nation prepares to mark one of its annual milestones: Federal income taxes must be filed by April 15.

If 2014 is similar to the past two years, that’s also around the date you’ll be allowed to keep some of the money you’ve earned this year. According to the Tax Foundation, every penny earned by the average U.S. citizen before April 13, 2013, went to some form of the myriad taxes we pay.

We don’t oppose the principle of taxation. It’s a necessary evil to maintain the infrastructure needed to support the host of functions that separate contemporary life from that of hunter-gatherers.

We don’t want to live in a nation where people have to change their own streetlights, inspect their own food and pool resources to fix neighborhood potholes. Nor do we want those services given to politically connected businesses that will try to squeeze the maximum profits out of life’s necessities without accountability, except to their corporate backers.

But today we are taxed in more ways than you might realize, from “fees” to sin taxes to tolls. The U.S. tax code, which guides the mother of all taxes, is grossly unfair and confusing. Its dysfunctional collection agency, the Internal Revenue Service, wields absolute power over all but the wealthiest, who can afford pricey lawyers and accountants.

Our problem with the current tax code includes both its complexity and unfairness.

If paying taxes is an absolute duty, then tax collection should be a transparent and user-friendly process. Calculating taxes should be quick and simple, not the convoluted, expensive ordeal it’s become. 

Taxation should also be fair. It’s not fair when profitable corporations get tax rebates instead of paying taxes. Or when people who earn their income from investments that profit off other people’s labor get off tax-free, meaning the laborers not only make them rich but also carry their tax burden. 

Perhaps people are willing to tolerate  this rotten deal because they believe someday they’ll live in the manor and reap the same benefits. Setting aside the unworthiness of such aspirations, that’s not likely to occur. Thirty years of rule by corporate oligarchs has stacked the odds against that dream. Looking at a graph of the nation’s growing income inequality will burst that bubble.

Middle-class workers, including upper middle-class professionals and executives who fancy themselves rich, pay more than those who are actually rich. Very few people make enough money to qualify for the elaborate schemes and loopholes that prompted hotel magnate Leona Helmsley to snap, “Only the little people pay taxes.” 

One particularly insidious perk of the ultra-wealthy is their ability to park their money in overseas tax shelters by establishing shell corporations. An estimated 21 trillion to 32 trillion American dollars sit safely in tax havens around the globe while pundits paid by the rich try to deflect attention to the pittance paid for food stamps. 

We believe it’s past time for simplifying the tax code and making it more equitable. If our leaders can’t find a way to make taxation fair and functional, then we should elect people who will.

Super rich see federal taxes drop dramatically

If the tax man took a bite out of your wallet this year, you’ll probably take little consolation in learning that the super rich pay a lot less taxes than they did a couple of decades ago. And nearly half of U.S. households pay no income taxes at all.

Republicans are aggressively moving forward with slashing programs like Medicare that serve as a safety net for working-class Americans, claiming that the government is broke and can’t afford them. What they don’t say is the reason government is broke is not because of the cost of those programs but because of the recession and the tax code, especially enormous tax cuts to the mega-rich.

The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. But their average federal income tax rate was 17 percent, down from 26 percent in 1992.

Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent.

The 400 highest earners have the same amount of wealth as half of all Americans, i.e., they are worth 158 million of their fellow Americans in dollars and cents. In recent decades they have seen their share of the American pie grow by historically unprecedented leaps and bounds as they’ve peddled their influence to reshape economic policies in their favor. At the same time, middle-class earners have seen only marginal income growth and working-class families have lost income.

Some leading economists say that the nation has undergone a staggering redistribution of wealth toward those at the top, with GOP tax policies fueling the shift.

The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation’s tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.

There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.

“It’s the fact that we are using the tax code both to collect revenue, which is its primary purpose, and to deliver these spending benefits that we run into the situation where so many people are paying no taxes,” said Roberton Williams, a senior fellow at the center, which generated the estimate of people who pay no income taxes.

The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans now want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue.

President Barack Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing. Obama’s proposal would result in $1 trillion in tax increases over the next 12 years. Neither proposal included many details, putting off hard choices about which tax breaks to eliminate.

In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS.

More than half of the nation’s tax revenue came from the top 10 percent of earners in 2007. More than 44 percent came from the top 5 percent. Still, the wealthy have access to much more lucrative tax breaks than people with lower incomes.

Obama wants the wealthy to pay so “the amount of taxes you pay isn’t determined by what kind of accountant you can afford.”

Eric Schoenberg says to sign him up for paying higher taxes. Schoenberg, who inherited money and has a healthy portfolio from his days as an investment banker, has joined a group of other wealthy Americans called United for a Fair Economy. Their goal: Raise taxes on rich people like themselves.

Schoenberg, who now teaches a business class at Columbia University, said his income is usually “north of half a million a year.” But 2009 was a bad year for investments, so his income dropped to a little over $200,000. His federal income tax bill was a little more than$2,000.

“I simply point out to people, ‘Do you think this is reasonable, that somebody in my circumstances should only be paying 1 percent of their income in tax?’” Schoenberg said.

Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said he has a solution for rich people who want to pay more in taxes: Write a check to the IRS. There’s nothing stopping you.

Schoenberg said Hatch’s suggestion misses the point.

“This voluntary idea clearly represents a mindset that basically pretends there’s no such things as collective goods that we produce,” Schoenberg said. “Are you going to let people volunteer to build the road system? Are you going to let them volunteer to pay for education?”

The law is packed with tax breaks that help narrow special interests. But many of the biggest tax breaks benefit millions of American families at just about every income level, making them difficult for politicians to touch.

The vast majority of those who escape federal income taxes have lowand medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes.

The share of people paying no federal income tax has dropped slightly the past two years. It was 47 percent for 2009. The main difference for 2010 was the expiration of a tax break that exempted the first $2,400 of unemployment benefits from taxation, Williams said.

In 2009, nearly 35 million taxpayers got a tax break for paying interest on their home mortgages, and nearly 36 million taxpayers took the $1,000-per-child tax credit. About 41 million households reduced their federal income taxes by deducting state and local income and sales taxes from their taxable income.

About 36 million families cut their taxes by nearly $35 billion by deducting charitable donations, and 28 million taxpayers saved a total of $24 billion because their income from Social Security and railroad pensions was untaxed.

“As a matter of policy, there would be a lot of ways to save money and actually make these things work better,” said Leonard Burman, a public affairs professor at Syracuse University. “As a matter of politics, it’s really, really difficult.”

From AP and staff reports

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